Canada -- so where's that?

Toronto-listed companies to benefit from U.S. listings

By

ThomCalandra

DENVER (CBS.MW) -- At least three Canada-traded companies will benefit from future listings in the U.S. stock market, executives and analysts at a Western mining summit say.

The companies, with operations in Canada, the United States and Mexico, are trading at discounts to shares of U.S.-traded gold miners of similar size. What's more, say executives, the market for small and intermediate gold producers will see something of a vacuum once a merger of three American Stock Exchange-traded gold companies closes later this year.

"If you're an American investor looking for intermediate-size gold miners, you don't have a lot of choices on the U.S. exchanges," says Frank Holmes, chief executive of asset manager U.S. Global Investors.

As the overall U.S. stock market comes off its worst quarter since the late 1980s, the search for undervalued gold miners is becoming common among professional investors and individuals who live in the United States.

Holmes and others say the expected merger of TVX Gold
TVX, +4.88%
Echo Bay Mines
ECO, +0.21%
and Kinross Gold
KGC, -4.46%
later this year could pave the way for Toronto-traded companies to enter the American Stock Exchange. Those companies include Northgate Exploration Ltd. (NGX), Apollo Gold (APG) and Wheaton River (WRM).

All three have stock market worths that are small -- below $250 million. Northgate already has filed regulatory paperwork for an American Stock Exchange listing, Northgate Chairman Terry A. Lyons said in an interview at the Mining Investment Forum in Denver this week. (Breaking news: Barrick CEO describes timing snafu.)

"We want to access the U.S. markets," said Lyons, whose Northgate is expected to produce 295,000 ounces of gold this year, all of it from properties in North Central British Columbia in Canada.

In addition, another, larger Toronto-listed company, Iamgold Corp. (IMG), expects to list on the American Stock Exchange in coming weeks. Iamgold, with a stock market worth north of $300 million, is projected to produce about 300,000 ounces of gold this year from a mine in western Africa.

Several small and mid-sized gold miners have seen their U.S.-listed shares outpace those of their foreign-listed contemporaries. Victor Flores, senior mining analyst at HSBC Securities, points to Goldcorp
GG, -2.44%
and Meridian Gold
MDG, -1.22%

"I'd say Goldcorp and Meridian easily trade at a premium to their Canadian counterparts, maybe 2.5 to 3 times discounted cash flow vs. 1.5 times," Flores, one of the best known gold analysts in the United States, says. "You have to remember, the ones listed in the U.S., like Meridian, have cash and a very good track record. The likes of an Apollo have to deliver what they promise to earn a premium in their share price."

Longevity and efficiency help the U.S.-traded companies, too.

Meridian, for example, has been in the business of sinking test drills and producing gold, about 400 million ounces this year, since 1981, when it was FMC Gold. Goldcorp, thanks to its robust Red Lake Mine in Canada, produces gold at one of the lowest post-tax costs in the business, about $91 an ounce. Gold in the spot market sells for $322 an ounce.

One of the best examples of an American premium for a Canadian company may be Bema Gold
BGO, -1.40%
which trades on the American Stock Exchange in New York. At one point this year, Bema, which explores in South America, Russia and Canada, saw its American shares trade as many as 7 million shares a day.

The thick trading of Bema and other gold companies is a big plus for the American Stock Exchange, the little kid on Wall Street. "The biggest gold companies are all listed on the NYSE, so the smaller Amex has to go after these producers of 100,000 or so ounces a year," says Richard Sacks of asset manager Phoenix Advisory Co. in Chicago.

Bema shares have quadrupled in value since January and far outpaced the gains of the company's Canadian brethren that have sole listings in Toronto. "They enjoy a liquidity premium, no doubt about that," says Robert Bishop of Gold Mining Stock Report.

Bishop, who is appearing at the Denver Gold Group's Mining Investment Forum, said Tuesday, "As a company with long-term name recognition, Bema has become a trading vehicle of choice for gold."

James Vail, a fund manager for ING Funds in New York, says the so-called liquidity premium works with the major producers, as well. "Look what happened when Gold Fields
GFI, -5.84%
listed on the New York Stock Exchange (in May). New shareholders flocked to the company."

Gold Fields CEO Ian Cockerill says the number of North America shareholders for the South Africa-listed gold miner rose to 27,000 on the NYSE from 17,000 on Nasdaq, where the company had traded its American Depositary Receipts before the switch. The number of North American shareholders now represents a third of all Gold Fields holders, a record high for the company. Gold Fields is one of the largest gold producers in the world.

Most Main Street investors, of course, tend to ignore the grizzled world of natural resources, even when the underlying commodities, such as gold, are beating the pants off the overall stock market -- as is the case this year with bullion and shares of gold miners.

"For anyone who knows the resource business, trading in Toronto is not an issue," says Allan Marter, chief executive of Golden Star Resources
GSS, +0.00%
a Denver miner that is listed on the American Stock Exchange, in Toronto and in Berlin. "But for those who don't know how to buy a Toronto stock, the ease of buying on a U.S. exchange is probably critical to an investment decision."

At this week's gathering of about 300 mining executives in Denver, a stand-up comedian asked the crowd to name an imaginary country, one that does not exist -- for a skit. "Canada," several people in the crowd shouted out.

Main Street investors surely will take steps to research Canadian gold companies, especially as the U.S. stock market sets new, multi-year lows. But unless those small Canadian gold miners trade in the U.S. stock market, few Americans will take the cross-border leap of faith.

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